by Louis Navellier
May 12, 2026
In last week’s two major labor reports for April, we first heard from ADP, which cited 109,000 new private-sector payroll jobs in April, well above economists’ consensus estimate of 84,000 and the largest gain in 15-months. Small businesses (under 50-employees) added 65,000-jobs; large businesses (over 500-employees) added 42,000-jobs, while mid-sized businesses (50-499 employees) added only 2,000-jobs.
Then, on Friday, the Labor Department reported a similar 115,000 total of payroll jobs created in April, well above economists’ consensus of 65,000, but there was bad news, too, as February payroll totals were revised to a loss of 156,000 jobs (from -133,000 previously reported). Also, March payroll jobs were revised down to +178,000 (from the 185,000-job gain previously reported). The overall jobless rate was unchanged at 4.3%. Average hourly earnings rose 0.16% (6 cents) in April to $37.41 per-hour, up 3.6% in the past 12-months. The average work-week expanded slightly to 34.3-hours, vs. 34.2-hours in March.
Overall, the April payroll report was not as strong as the headline number, so the Fed may still cut key interest rates sooner rather than later to promote job creation, especially due to subdued wage growth.
On Thursday, between these two-reports, the Labor Department said productivity rose 0.8% in the first-quarter. This was a preliminary estimate, so it will likely be revised. Economists were expecting productivity to surge 1.6%, but I suspect severe winter weather held back some of the productivity gains most analysts had anticipated. Unit labor costs rose 2.3% in the first-quarter, down from 4.3% in the fourth-quarter, which means wage inflation is cooling. I expect much bigger productivity gains in the upcoming quarters, which should fuel non-inflationary GDP growth and allow the Fed to cut-rates again.
Last Tuesday, the Institute of Supply Management (ISM) announced its non-manufacturing (service) index declined to 53.6 in April, from 54 in March. I would not worry about this decline, since any reading above 50-signals an expansion, and the ISM service index has been above 50 for 22-consecutive months.
The primary reason for this slight deceleration was the new orders component slowing to 53.5, down sharply from 60.6 in March. Many other ISM service components improved in April, such as business activity (up 2-points), employment (up 2.8-points) and supplier deliveries (up 0.6 points). Also, 14 of 17 service industries surveyed improved in April, up from 13 in March, so the service sector looks healthy.
The Commerce Department announced the U.S. trade deficit rose 4.3% in March to $60.3-billion, which may cause some economists to trim their first-quarter GDP calculations. Specifically, imports rose 2.3% in March to $381.2-billion, while exports rose 2% to $320.9-billion. Due to surging energy prices, the April trade deficit should be lower. In March, passenger car imports rose $2.8-billion, and they may come under more pressure if President Trump increases automotive tariffs on the EU to 25%, up from 15%.
Overall, I expect the U.S. trade deficit to shrink in April due to booming energy exports. Also, Canada reported its first trade surplus ($1.3-billion) in six-months in March, due in large part to their booming mining sector growth – such as gold and minerals (up 24%) and energy (up 15.6% in export growth).
It will be interesting to see how on-shoring will boast GDP growth. The Atlanta Fed now estimates 3.7% annual GDP growth in the second-quarter, but I expect this will be revised higher and we may actually hit a 5% annual pace from on-shoring and increasing energy exports, AI fueled productivity gains and consumer spending, so I expect 5% annual GDP rates to arrive no later than the third-quarter of this year.
As we’ve seen in this phenomenal market surge in April and early May, investors seem confident the U.S. remains the safest place in the world to invest. Foreigners now hold a record $9.5-trillion in U.S. Treasuries and are expected to benefit from an appreciating U.S. dollar due to stronger economic growth, as well as higher interest rates than those available in China, Japan or the EU. Finally, the U.S. has better demographics than most countries, so its potential for future economic growth remains unmatched.
Multiple Markets Are Being Disrupted by the Persian Gulf Blockade
On Truth Social, President Trump said, “Countries from all over the World…have asked the United States if we could help free up their Ships, which are locked up in the Strait of Hormuz,” adding, “For the good of Iran, the Middle East, and the United States, we have told these Countries that we will guide their Ships safely out of these restricted Waterways, so that they can freely and ably get on with business.”
In addition to crude oil exports, other markets are becoming choked off by the Iranian conflict. For instance, the Middle East supplies about 20% of all the aluminum consumed in the U.S., so the blockage of the Strait of Hormuz hurts the auto industry and other aluminum intensive industries. Aluminum prices from U.S. smelters have risen nearly 90% in the past year. Canada is also a major supplier of aluminum, due to its cheap hydro-electric plants giving them a competitive advantage, even after the cost of tariffs.
Crude oil prices have fallen some, since Iran is reviewing a proposed U.S. peace plan, summarized in a one-page memo. Iran said it would respond through Pakistan, which has been helping to broker the peace negotiations. The good news is the economic squeeze on Iran appears to be starting to work. The Wall Street Journal reported Iran is struggling to store unsold crude oil and is now putting it in old tanks. If Iran needs to cap its oil wells, it will curtail production for months, since restarting oil wells takes a lot of work, so it will be interesting to see if economic sanity causes Iran to reach a permanent peace agreement.
The new peace offer, which Trump dubbed “Project Freedom,” is an attempt to move traffic through the Strait of Hormuz with the help of other countries, insurance companies and shipping organizations, according to senior U.S. officials. Our Navy has started escorting vessels through the Strait of Hormuz and crude oil prices are moderating on hopes traffic in the Strait of Hormuz will dramatically increase.
When German Chancellor Merz recently said America has been “humiliated” by Iran, an irked President Trump announced the U.S. would withdraw 5,000-troops from Germany. Furthermore, President Trump has threatened 25% auto tariffs on the European Union (EU) because he says the EU has failed to comply with the existing trade agreement with 15% auto tariffs. The Trump administration has been conducting a full court press to get the German auto industry to move more of its production to America. Germany already has huge plants in Alabama, South Carolina and Tennessee. Even Porsche may soon sub-assemble some of its premium vehicles at VW’s new plant in South Carolina by shipping engines and transmissions from Germany to circumvent tariffs. Since electricity in the south is only about 25% of the EU-mandated green energy costs in Germany, there are other economic incentives to move more production to America.
Key Challenges Facing the Incoming Fed Chair Warsh
I hope you feel good about America and our increasing influence in the world. As President Trump said at the World Economic Forum in Davos earlier this year, the key to economic prosperity for other countries is simply to follow the U.S. or get left behind. When it comes to interest rates, the Federal Open Market Committee (FOMC) statement says it is open to more interest rate-cuts, despite citing a few reservations.
Incoming Fed Chairman Kevin Warsh’s first objective will likely be to get a consensus within the FOMC before making any more key interest rate cuts, so a cut is not guaranteed at the mid-June FOMC meeting. However, America’s dominance is strengthening the U.S. dollar, which helps soften prices of many commodities and imports, which is deflationary. AI productivity gains are also deflationary. Since the Fed cannot control energy prices, I expect Warsh will strive to convince the FOMC to make more rate-cuts.
Treasury Secretary Scott Bessent and incoming Fed Chairman Kevin Warsh certainly have their hands full with the government’s cumulative debt of over 100% of GDP. Bessent and Warsh may explore coordinated action to push Treasury yields lower. So far, this is just Wall Street gossip, since Warsh must first get more members on the FOMC to agree. In the process, however, Bessent and Warsh do not want to weaken the dollar, since a strong dollar is deflationary, lowering prices on commodities and imported goods.
If November’s mid-term elections cause a split between Congress and the White House, the president’s plans for greater American economic growth may be derailed, but if the Iran war ends on favorable terms and Congress doesn’t flip in November, 2026 may be remembered as the year America took charge of the world economy, via technology, military operations and energy, as well as stock market earnings.
Optimism can be addictive, and you cannot hold back the stock market with its record earnings, growing order backlogs and hope for the future. Also, our 50-states compete with each other to create a perpetual motion machine, fueling a surge toward 5% annual GDP growth. We are now in the best stock picking environment I’ve seen in decades, so I hope you are prospering with our fundamentally superior stocks!
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Job Growth Exceeds Analyst Expectations
Income Mail by Bryan Perry
The Bullish Outlook for U.S. Energy Infrastructure Strengthens
Growth Mail by Gary Alexander
America is Running Economic Laps Around Europe
Global Mail by Ivan Martchev
Political Considerations Before the Trump-Xi Summit
Sector Spotlight by Jason Bodner
When the Tide Turns This Fast, Pay Attention
View Full Archive
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